With spiraling debts and mounting financial pressure, the fear of a lawsuit or judgment can be daunting. However, filing bankruptcy to avoid a judgment or lawsuit can be a viable solution. Let’s delve into the intricacies of this process.
The Dread of a Judgment or Lawsuit
For an average person, the prospect of a judgment or lawsuit can be terrifying. The legal system and courts are not merely tools of debt collection; they can seem like overwhelming forces that leave you feeling helpless.
Understanding Bankruptcy
Bankruptcy is a legal proceeding involving a person or business unable to repay their outstanding debts. It generally discharges most unsecured debts, and in most cases, a debt resulting from a judgment lawsuit can be discharged.
How a Judgment or Lawsuit Works
A judgment is a court order confirming that you owe a creditor a debt. The process of establishing that a debt is owed and collecting that debt involves several steps:
- Receipt of a Statement of Claim: This begins with a creditor or lawyer sending you a legal document called a statement of claim.
- Court’s Judgment: If you ignore this notice or lose your defense in court, the court will award a judgment to the plaintiff.
- Debt Collection: The creditor can then try and collect from you, which could involve garnishing your wages or seizing your bank account.
- Asset Seizure: A judgment creditor can also get an execution order to seize and sell your assets.
Bankruptcy as a Shield Against a Judgment
Filing bankruptcy or a consumer proposal can provide a ‘stay of proceeding,’ which stops most creditor actions for judgment debts, including garnishments. This can potentially unfreeze a bank account that has been seized due to the judgment.
Acting Before a Lien is Placed on Your Property
While bankruptcy can stop a wage garnishment and most creditors from taking money from your bank account, it does not deal with secured debts. If your creditor places a lien on your home or other property, they can seize and sell those assets even if you file bankruptcy.
Exceptions to the Rule
Certain debts are not eligible for discharge in a bankruptcy, including debt related to fraud or misrepresentation, court-imposed fines, student debt less than 7 years old, and child support or alimony. A judgment debt or garnishment for these debts cannot be stopped.
Bankruptcy vs. Consumer Proposal
While both bankruptcy and a consumer proposal can eliminate most judgment debts, they have different impacts. A consumer proposal allows you to pay off your debts over a longer period, while bankruptcy typically results in a quicker discharge of debts.
The Impact of Bankruptcy on Your Credit
Filing for bankruptcy can have a significant impact on your credit score, and it can stay on your credit report for up to 7 years. However, with responsible financial habits post-bankruptcy, you can gradually rebuild your credit.
Seeking Professional Help
If you’re dealing with a judgment order that you can’t pay, it’s advisable to consult a Licensed Insolvency Trustee. They can provide you with professional advice and guide you through the process of filing bankruptcy or a consumer proposal.
Conclusion
Filing bankruptcy to avoid a judgment or lawsuit can be a lifeline when you’re drowning in debt. However, it’s crucial to understand the process, the potential impacts, and the available alternatives. Seek professional advice to make an informed decision.
